Rutanen v. Ballard
424 Mass. 723 (1997)
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Rule of Law:
A trustee has a duty to sell trust property when it becomes so unproductive that retaining it is unfair to the income beneficiaries. An exculpatory clause inserted into a trust by an attorney-trustee without full disclosure and explanation to the settlor is ineffective to shield the trustee from liability for a breach of duty.
Facts:
- In 1969, Antonia Quevillon, an elderly woman in poor health, hired attorney Carl Baylis to create a trust for her apartment buildings.
- Baylis drafted the trust, naming himself and Quevillon's daughter, Estelle Ballard, as cotrustees, and included an exculpatory clause limiting trustee liability to 'willful misconduct or omissions in bad faith' without specifically explaining its implications to Quevillon.
- After Quevillon's death in 1971, the property, initially valued at $256,000, was managed almost exclusively by Ballard with little involvement from Baylis.
- Over the next 15 years, the property's value grew to $1.3 million, but it produced only $48,813 in total income for the income beneficiaries.
- In 1985, after the beneficiaries complained about the low income, the trustees received offers to purchase the properties for a total of $1.64 million, significantly more than their appraised value.
- Ballard desired to own the properties herself but could not secure financing to match the offers.
- Ballard then refused to sell the properties to the outside buyers, later testifying that in making this decision, she did not consider the interests of either the income beneficiaries or the remaindermen.
- Baylis made some attempts to persuade Ballard and filed an incomplete petition with the court, but he failed to take reasonably necessary steps to compel his co-trustee to sell the property or to fully inform the court of her improper refusal.
Procedural Posture:
- The income beneficiaries of the Antonia Quevillon Trust sued the trustees, Carl Baylis and Estelle Ballard, in the Massachusetts Probate and Family Court for breach of fiduciary duty.
- The remaindermen of the trust intervened in the lawsuit, siding with the income beneficiaries.
- The Probate and Family Court judge found that the trustees breached their fiduciary duties, the exculpatory clause was ineffective, and awarded damages.
- The trustees appealed the trial court's judgment to the Massachusetts Appeals Court.
- The Appeals Court affirmed the judgment of the Probate Court.
- The trustees then applied for further appellate review to the Supreme Judicial Court of Massachusetts, which granted the application.
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Issue:
Does a trustee breach their fiduciary duty by retaining unproductive real estate that generates disproportionately low income for the income beneficiaries, despite having an opportunity to sell at a price above appraised value?
Opinions:
Majority - Fried, J.
Yes. A trustee breaches their fiduciary duty by retaining unproductive property where the income is so disproportionately low compared to the asset's value that it is unfair to the income beneficiaries. The court found that the properties were under-productive, triggering a duty to sell. The annual income of roughly $3,000 on a corpus that had grown to $1.3 million was 'far below what would be expected.' The court determined that cotrustee Ballard breached her duty of loyalty by acting in her own self-interest, hoping to acquire the properties herself. Cotrustee Baylis breached his duty by abdicating his responsibilities to Ballard and failing to take reasonably necessary steps—such as properly petitioning the court to compel the sale—to prevent his cotrustee's breach. The exculpatory clause was held to be ineffective to protect Baylis because, as the attorney who drafted the trust for his elderly and uncounseled client, he failed to call her attention to the clause and explain its implications, thereby abusing his fiduciary relationship with the settlor.
Analysis:
This decision reinforces the trustee's fundamental duty of impartiality between income beneficiaries and remaindermen, clarifying that this duty can mandate the sale of an appreciating but under-productive asset. It sets a significant precedent regarding the invalidity of exculpatory clauses inserted by attorney-trustees, establishing that such clauses are ineffective if the attorney abuses the fiduciary relationship by failing to ensure the settlor provides informed consent. The case also highlights that a co-trustee cannot escape liability by merely acquiescing to a breach by another trustee; they have an affirmative duty to take reasonable steps, including legal action, to prevent or redress the breach.
